State budget-balancing measure leads to shift in PERA contributions

University of Colorado employees who are PERA members will see a 2.5 percent reduction in wages during the 2010-11 fiscal year in order to comply with a new Colorado law that shifts a portion of retirement fund contributions from the employer to the employee.

Gov. Bill Ritter signed Senate Bill 10-146 into law as part of the effort to balance the state budget. The law decreases the employer contribution rate in the state and judicial divisions of PERA by 2.5 percent and increases the member contribution rate by 2.5 percent for one year.

About 11,000 CU employees are Public Employee Retirement Association members.

The law decreases the state's contribution rate to 7.65 percent from 10.15 percent beginning with the July pay period. Employee contribution rates to the fund will rise to 10.5 percent of salary from 8 percent.

"There will be a one-time savings to the university," said Kelly Fox, vice president and chief financial officer. How the savings will be invested is a campus by campus decision, Fox said, but the university likely will use the money to "mitigate what we're anticipating will be a funding cliff." She said how the funding might be invested won't be known until June, when the budget is set.

"One of the first questions I get is that people are worried that the 2.5 percent increase won't be for just one year, it will be indefinite," said Lori Krug, human resources management system functional analyst in Payroll & Benefit Services and chair of the University of Colorado Staff Council. "SB146 very specifically places limits on the increase – it ends on June 30, 2011 – so it would take a separate legislative action."

For employees earning $40,000 a year, the deduction will amount to a $66 decrease in monthly pay, according to university calculations.

The extra money paid to PERA through the payroll deduction will go directly into personal accounts, accrue interest, and that amount is refundable if the member leaves the university, said Katie Kaufmanis, communications director for PERA. (Employer contributions are not refundable to the employee.)

The contributions are tax deferred and will reduce taxable income, Kaufmanis said. The extra 2.5 percent contribution will not reduce an employee's highest average salary, a calculation used to determine retirement benefits.

"The university has to be in compliance with the law," Krug said. While resources including the Payroll & Benefit Services website might answer general questions, Krug advises members with specific questions to contact a PERA representative directly.

Kaufmanis said the law has nothing to do with PERA's funding status. Earlier this year, SB10-001 made numerous changes to PERA's contribution rates and retiree benefits to help shore up the ailing fund. The effects of that bill are summarized in this chart at the Colorado PERA website.

"Like most other people at the university, I'm not pleased to see no pay increases, potential benefit decreases and increases to PERA contributions," Krug said. "I intend to speak with administration officials to see what can be done in future fiscal years to stop the bleeding. As the economic outlook starts to pick up, more businesses are bringing people on and hiring at good rates. University employees have been very patient and dedicated to continuing to do their jobs with more work and less take-home pay. We may start to lose institutional resources to private companies if the university can't get a grip on it."

SB146 will save the state about $37 million during the 2010-2011 fiscal year.

Lawmakers spent much of this year's session making sharp cuts to the state budget in order to remedy an estimated funding shortfall of about $1.3 billion. The recession has caused many states, including Colorado, to slash programs and find innovative ways to save money.

Both the Colorado House and Senate recently passed the Long Bill – the proposed $18.2 billion state budget for 2010-2011. It awaits the governor's signature.

Despite improving fiscal news, state experts say economic instability makes it hard to determine accurately how the state will close out the year. Some suggest the state might even end up with a surplus. Despite that, Gov. Ritter has said he is not inclined to change proposed cuts in the bill.